(Bloomberg) -- Italy's banking crisis could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered, Societe Generale SA Chairman Lorenzo Bini Smaghi said.
“The whole banking market is under pressure,” the former European Central Bank executive board member said in an interview with Bloomberg Television Wednesday. “We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.”
Lorenzo Bini Smaghi
With Italian banks weighed down by about 360 billion euros ($389 billion) in soured loans, the government has been sounding out regulators on ways to shore up lenders amid a renewed selloff in the wake of the British referendum to leave the European Union. The government would invoke an EU rule allowing temporary state aid if regulatory stress tests uncover a shortfall at Banca Monte dei Paschi di Siena SpA, a person with knowledge of the discussions said Tuesday.
Europe's banking market faces the risk of a systemic crisis unless governments accept the idea of the taxpayer as the ultimate recourse in a crisis, Bini Smaghi said. Any intervention should be as swift as possible, he said.
Both Italy and Germany have too many banks that are not profitable and more consolidation is needed, the chairman said. Italy needs to do more to deal with non-performing loans and Prime Minister Matteo Renzi will have to take politically unpopular steps including cost cuts and job reductions, he said.
“What's needed is a European solution,” he said. “So far, we've had national solutions. We need a clear backstop.”
On Brexit, Bini Smaghi said he expects “very long” negotiations. He expressed concern that Britain's proposal to reduce corporate taxes to attract companies could lead to risky tax competition across Europe.
To contact the reporters on this story: Ross Larsen in London at rlarsen2@bloomberg.net, Guy Johnson in London at gjohnson87@bloomberg.net, Caroline Hyde in London at chyde3@bloomberg.net. To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net.
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